Navigant Research Blog

Today’s facility managers are faced with the challenge of assessing performance while trying to sift through endless streams of data. People want better data, not just more, as constant flows of information can sometimes muddy the waters for decision makers. The integration of various subsystems in building automation further deepens this web of connectivity, which is why commercial buildings today are looking to smart building technology as a way to better facilitate and manage system operations. Knowing how a system operates is imperative to business development and economic growth. Thus, companies are starting to focus on the primary element of those systems: building occupants.

Stand Out from the Pack

As “IoT: Building Awareness – Part I” explained, the Internet of Things (IoT) has had a significant impact on intelligent building designs. The increased sophistication of smart technology has created a more competitive business market, making it difficult for companies to outperform their competitors. As intelligent building systems become better at adopting the latest technologies and connectivity strategies, the challenge for businesses becomes knowing how to leverage their competitive advantage. Focusing on occupant satisfaction may give companies the leg up they need in a market where customer loyalty and employee retention is becoming a major challenge. This may also be beneficial from a branding perspective, as the growth in IoT services has made it difficult for companies to differentiate themselves in a world of streamlined automation. Focusing on occupant satisfaction takes a more holistic approach to facility management by helping businesses and employees—and the buildings they occupy—become more efficient through enhanced decision-making capabilities.

Management 101

You can’t improve a system without knowing how it operates. News of partnerships like the one between Lucid and Cushman & Wakefield are becoming more mainstream as businesses look to advanced software solutions and intelligent integration for understanding performance operations. Advanced sensors and data analytics that track tenant behavior provide valuable information into system operations and allow facility managers to make better decisions on how to upgrade their offerings. This is important from an efficiency standpoint because it helps managers understand where areas may be underperforming, why, and how to address those issues. For example, building owners can cut down on utility costs if they know which rooms will require less heating or cooling based on the number and location of occupants.

It’s a Win-Win

Businesses and employees also stand to benefit from this comprehensive approach, as various studies stress the relationship between comfort level and worker efficiency. Researchers at the University of Warwick’s Department of Economics reveal causal relations between employee well-being and company performance. This study, along with several others, shows that employees are happier and more engaged in areas where they feel comfortable and can be more productive. Facilitating occupant satisfaction can also strengthen employee retention as happier employees are more likely to succeed in their careers. These findings are important for business owners justifying investments toward creating amicable office environments through smart building technology.

The perfect storm to realize the promise of the intelligent building is upon us. New policies on climate change and stakeholder demands for sustainability that will redefine best-in-class standards for commercial buildings have arrived, and building owners now have an opportunity to invest in intelligent building solutions that can transform their facilities and meet these changing demands. The result is a new set of competitive differentiators wherein dynamic facility operations optimize energy consumption and maximize comfort, along with a new market outlook for Class A commercial buildings in which owners and investors can realize economic benefits alongside stakeholder satisfaction.

Climate Change Pressures

At the end of 2015, the international convention on climate change orchestrated by the United Nations, or COP21, started a new chapter for the intelligent building history books. The Paris Agreement calls on 195 countries and the European Union to execute a global strategy for greenhouse gas (GHG) emissions reductions. So how does this trickle down to the commercial facility, and what does it mean for intelligent buildings? According to the U.S. Environmental Protection Agency (EPA), commercial and industrial buildings contribute about 45% of the total GHG emissions generated in the United States. As a result, energy efficiency represents a tremendous opportunity for climate change mitigation.

Stakeholder Demands

Policymakers, shareholders, activists, and forward leaning corporations are taking the helm in directing transparency on climate risk disclosures. At the end of October, 32 members of Congress sent a letter to the Securities and Exchange Commission (SEC) urging stronger enforcement and commitment to the 2010 SEC release 33-9106, “Commission Guidance Regarding Disclosure Related to Climate Change.” During that same month, 81 companies signed the American Business Act on Climate Pledge to showcase their commitment to climate change mitigation with goals as ambitious as up to 50% emissions reductions. In addition, to link back to the intelligent buildings market specifically, the evolving workforce is increasingly demanding sustainable and technology-driven workspaces. According to the Pew Research Center, 2015 marked a generational tipping point, with Millennials now representing the largest share of the U.S. labor force. This next generation in leadership brings a mind shift in priorities and expectations. Hosts of surveys have highlighted Millennials’ innate reliance on technology for all aspects of their lives and how this translates into expectations in the workplace. These workers also prioritize sustainability when evaluating career opportunities. This combination of a technology and sustainability mindset is expected to drive facilities industry leaders toward investment in intelligent building systems.

Economic Benefits

Economics are still the bottom line, and Navigant Research suggests that investment in advanced sensors, analytics, and services will help transform facilities into intelligent buildings, meet growing stakeholder pressures, and deliver economic benefits. The increased proliferation of the Internet of Things (IoT) is enabling the cost-effective deployment of intelligent building solutions that create a data-rich environment for improving facility operations. In addition, the intelligent building is optimized in terms of energy consumption for significant reductions in GHG emissions; these buildings also provide unprecedented transparency for monitoring sustainability, measuring cost savings, and integrating technology into facility management and the occupant experience.

On October 6, the Environmental Defense Fund (EDF) showcased the benefits of intelligent building technologies outside the facility walls. The business case for investment in intelligent building solutions can be amplified by the capacity to support grid reliability and resiliency in addition to direct economic and performance benefits. The Federal Energy Regulatory Commission (FERC) has ruled that demand response (DR) and energy efficiency resources must be allowed to participate in the PJM market on equal footing with other capacity resource. In fact, in Chicago, a collaborative pilot with the PJM Interconnection known as the Combined Capacity Asset Performance Project is demonstrating this opportunity. After the fallout of the polar vortex of 2014, PJM established these requirements to ensure that capacity resources would be immediately responsive at any time year-round. These requirements move away from PJM’s former model, which allowed for summer-only DR participation; the Chicago pilot is poised to show just how well intelligent buildings can fare in these circumstances.

“Demand response has demonstrated its potential to cut peak electricity demand, help balance the grid, and save customers money. The project offers an inventive way to preserve and grow this valuable resource in the PJM market. The collaboration will serve as a strategic model for buildings, which will be able to combine their demand response potential to enter the market where they wouldn’t be able to participate on their own,” explained Andrew Barbeau, president of the Accelerate Group and senior clean energy consultant for EDF.

Sounds Great, but What Gives?

The development of the DR market has not been a smooth ride. Three months following the FERC ruling in July 2015, the Supreme Court debated DR’s validity for generating revenue while maximizing grid reliability. As Penn State professor Seth Blumsack explained, “The case, however, ultimately goes far beyond demand response. The issue at hand is all about the ability of the federal government to set market rules for local power systems—that is, the portion of the grid that reaches individual homes and businesses—versus the regional grid that transports power over long distances across the United States.” It is yet to be seen how the court will rule on the issue.

DR-Enabling Technology Expected to Overcome Regulatory Uncertainty

If anything can pull the brakes on market development, it’s market uncertainty. Luckily, in this market, the enabling technology is expected to continue selling. On the commercial building side, the critical layer is the software and services that orchestrate load management. Navigant Research follows these solutions through its Building Innovations program. The future is bright for building management systems; not only do these systems provide the software analytics and services that can not only support DR, but they also provide load management for the customer to generate internal financial benefits. For example, a customer may integrate a software solution that provides insight into energy consumption across their portfolio. The information can direct change in equipment operations that can deliver new revenue streams formally (through DR participation), or informally by actively shifting the energy load to reduce peak demand charges. In the end, the building energy management system investment is a win-win. This kind of benefit underscores the optimistic outlook for intelligent buildings that will be grid-ready as the DR market prevails over regulatory uncertainty.

The U.S. Department of Energy (DOE) just released a new interactive map and report highlighting the risks to resilience and reliability of energy supply at a regional scale across the United States. The report highlights projected climate change impacts across seven regions to direct climate change resiliency and mitigation efforts on the most vulnerable components of our energy infrastructure.

The climate projections and potential impacts span across nine segments of the energy sector, including oil and gas exploration and production, fuel transportation, thermoelectric power generation, hydropower, bioenergy and biofuel production, wind energy, solar energy, electric grid, and energy demand. This comprehensive view of climate change impacts across the energy. The threats are prioritized for each region based on the DOE’s analysis, as illustrated in the map below.

Projected Climate Impacts on the U.S. Energy Sector by Region

(Source: U.S. Department of Energy)

The climate change-related threats to fuel transport, the grid, and energy demand underscore the importance of investment and commitment to transforming how we think about and use energy. Navigant Research characterizes this necessary revolution of the energy sector as the energy cloud. Profound changes in the technologies that support our use of energy will also transform the nature of the grid, energy assets, and even buildings.

The rapid increase in investment of distributed energy resources (DER), the technology enablement for demand response, and the growing volumes of data associated with the Internet of Things (IoT) is changing the character of buildings. The intelligent building is the framework that helps building owners leverage technology and services to use the expansive data on facility equipment, operations, occupancy behaviors, and other business systems to optimize energy consumption.

Intelligent building solutions are enabling greater integration of control and automation across systems, from HVAC to plug loads, to deliver more strategic and coordinated energy management. The insights from these building energy management systems and industrial energy management systems direct changes in when and how much energy our buildings use.

As climate change impacts continue to threaten our traditional energy industry, intelligent building solutions can usher in a new era in building management. The opportunity is two-fold; first, the technology can restructure building system operations, and second, the software and services can support the change management of people investing in and operating building systems. The technology is available and capable of delivering sophisticated energy management strategies, and the future will be shaped by how software and services help change the mindset and procedures on the human side of the equation.